Question

Explain the following terms/concept:
Advances

Answer 1

(1) A credit facility provided by the bank to its customers for a shorter period is called advances. Advances are usually granted by the bank to the business to meet the day-to-day requirements of a business. Interest is charged only on the amount actually withdrawn and not on the amount sanctioned.
(2) The amount received by the bank by way of deposits through various accounts is utilized for granting advances or loans to trade and industry. The bank adopts the following devices to advance short term finances:
i) Bank overdraft, (ii) Cash credit, and (iii) Discounting Bills of Exchange.